Kyrgyzstan still a mine field for investors

By Li Deming Source:Global Times Published: 2012-10-28 21:20:11

A violent confrontation erupted between Chinese nationals and local residents recently near the Taldy-Bulak Levoberejny gold mine field in Kyrgyzstan. According to the Russian news agency RIA Novosti, on October 22, about 450 villagers threatened to destroy the offices of the Fujian-based Zijin Mining Group, after a villager's horse was killed by a staff member of the company that purchased the mine in 2011.

A spokesperson from the Kyrgyz government claimed that they have called the police and will protect all the facilities of the Zijin company and ensure the safety of all Chinese staff. It seems that the chaos can come to an end.

Since 2009, many Chinese enterprises, both State-owned and private, have come to Kyrgyzstan to engage in the mining business. According to statistics from the Chinese embassy in Kyrgyzstan, between 2009 and 2012, more than 50 Chinese companies registered for mining businesses here. Many investors focus on the field of resources including gold, copper, iron and coal.

However, it's not easy to do business in Kyrgyzstan. Blind investment choices, irresponsible investment competition, the country's disorderly mining industry and resistance from locals, which is usually ignited by opposition parties, trap many foreign companies working in this country in an unstable and risky situation.

In 2010, then president Kurmanbek Bakiyev was deposed from office. The transitional government cancelled a number of prospecting and mining permits that foreign companies had gone through a great deal of difficulty to obtain. Some people in power have tried to obtain new permits from the new government in order to sell them on to foreign companies. Some Chinese investors have also joined in these dirty dealings.

Kyrgyzstan is home to abundant mineral resources. Due to its underdeveloped economy, past leaders have made the mining industry a driving force for the country's economic development. However, Kyrgyzstan faces problems of serious corruption.

Many national mining fields were auctioned off or privatized, escalating the conflict between the public and people in power. This has seriously undermined the credibility of the authorities.

When locals see the mining fields auctioned off or privatized and get nothing out of it, their anger can be instantly ignited. In addition, due to the incitement of opposition parties, people across the country hold resistance campaigns against foreign investors, so as to protect the mineral resources that were left by their ancestors.

According to my understanding, since the beginning of 2012, a Xinjiang company in the south of Kyrgyzstan has been inspected and harassed by the local government. Nearby villagers smashed and looted the company, which caused it great losses. Among the dozens of registered Chinese mining companies, only one is still functioning: a "resource exchange" project between the two countries, which essentially means Chinese companies providing funds for infrastructure projects in Kyrgyzstan in return for mining permits.

In September 2011, a subsidiary company of Zijin acquired the Taldy-Bulak Levoberejny from the Kazakh-British owner. Thus Zijin, the industry mogul in China, holds high expectations of such a cooperation mode. In 2012, when some Chinese companies lost their mining permits while others obtained them, the subsidiary company successfully extended the production starting day to 2014.

Insiders are not surprised, as the Kyrgyz national gold company still holds 40 percent shares in Taldy-Bulak Levoberejny. Everything previously went smoothly, but we will have to wait and see if the latest confrontation will make Chinese investors think calmly before acting rashly.

Chinese investors need to pay more attention to the deep-rooted causes of Kyrgyzstan's mining problems. The country's political background, nationalism among the public, the government's credibility and administrative capability, social conflict, power imbalance between different interest groups as well as distribution of interests are all factors that influence the security of foreign investors in this resources-rich country.

The conflict between China's Zijin company and local people seems to be an isolated one, but it is also inevitable from a long-term perspective. If the Kyrgyz government doesn't fix its own problems, we can foresee more undesirable results from foreign resources projects.